3 Reasons to Love CBOE Holdings Inc.

CBOE Holdings (NASDAQ: CBOE  ) operates some of the largest options and futures exchanges in the world, including its namesake Chicago Board Options Exchange.

The company has grown tremendously over the past several years as the popularity of options and futures as investment vehicles has soared. Since 2009, the company has grown at an average annual rate of 9.2%, and operating margins have expanded from 38.7% to 50.8%. What is driving the growth, and how does the company plan to continue its excellent growth going forward?

CBOE's Proprietary products are becoming very popular
One of the most certain ways to succeed in any business is to be the only one to offer products that everyone wants, and CBOE does a great job of this, particularly with its SPX (S&P 500) and VIX (volatility) products.

In 2013 alone, the average daily volume of the company's SPX options grew by 18% driven mostly by explosive growth in the weekly contracts, whose volume nearly doubled last year and are up another 46% so far in 2014.

CBOE plans to continue this growth by targeting its marketing efforts at institutional and overseas investors, as well as by stepping up its efforts to educate the trading public. The company also just started to offer nearly 24-hour trading five days per week, and the impact of this will be clearer when the company reports second quarter earnings.

The company's VIX volatility options and futures have soared in popularity in recent years. Trading volume for VIX options grew by 28% in 2013 and 19% so far this year, and futures volume has seen even more impressive gains. Check out the graph to see the remarkable growth in trading volume for CBOE's proprietary products over the past few years.

Educated investors mean higher trading volumes
In general; people who don't understand options and futures don't trade them. Makes sense, right?

That's why CBOE is allocating a large portion of its resources to education programs. The company offers online courses for beginners, as well as intermediate and advanced traders through its Options Institute. There are also webcasts, tutorials, and games to help educate prospective traders.

The courses and programs are designed to help investors understand options and build up enough confidence to use them in their trading strategies. And to make sure plenty of people take advantage of the courses, CBOE offers them free of charge.

This is a brilliant strategy by CBOE. Even though the company technically "loses" money by developing the courses and not charging, they'll more than make up for it through increased trading volumes, which means more revenue. The dynamic growth in trading volumes so far is proof that the desire for CBOE's products is there...people just need to be shown how to use them.

Volatility is the future
Since CBOE's proprietary products are rapidly gaining popularity; the company is in the process of developing new products, especially connected to interest rates.

Interest rate movements have been a very closely followed subject recently, so CBOE is looking to capitalize on the trend. Later this year, the company plans to introduce interest rate volatility futures on the CBOE 10-year U.S. Treasury Note volatility index.

The company sees interest rate volatility as an exciting and new market, and if the results from the company's other volatility-based products are any indication, there could be massive potential.

CBOE is also looking to expand its success with its SPX weekly options to the volatility world by recently launching futures and options on the short-term volatility index, or VXST. Whereas the VIX options and futures are monthly, the short-term contracts are based on weekly volatility. It'll be very interesting to see how quickly these catch on once the company reports its 2nd quarter earnings in August.

Growth, education, and innovation are a winning formula
Not only is CBOE having excellent success in growing the awareness and use of its current products, but the company is trying to replicate their success with a new proprietary product line.

If CBOE is successful in educating the masses about its new products and experiences similar success as it has already had, the growth of the past few years could be just the beginning.

CBOE + Apple? This device makes it possible.
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its destined to change everything from banking to health care. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3021390, ~/Articles/ArticleHandler.aspx, 9/1/2015 10:37:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

Today's Market

updated Moments ago Sponsored by:
DOW 16,158.13 -369.90 -2.24%
S&P 500 1,932.98 -39.20 -1.99%
NASD 4,684.03 -92.48 -1.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 10:20 AM
CBOE $62.52 Down -0.74 -1.17%
CBOE Holdings CAPS Rating: *****